JOURNAL OF URBAN ECONOMICS

ARTICLE NO.

43, 244]257 1998.

UE972042

Fiscal Decentralization and Economic Growth:

A Cross-Country Study*
Hamid Davoodi and Heng-fu Zou
Policy Research Department, The World Bank, N10-075, 1818 H St. NW, Washington, DC
20433; and Institute of Ad anced Studies, Wuhan Uni ersity, Wuhan, China 430072
Received May 14, 1996; revised January 31, 1997
We use a panel data set of 46 countries over the 1970]1989 period to investigate
the relationship between fiscal decentralization and economic growth. We find a
negative relationship between fiscal decentralization and growth in developing
countries, but none in developed countries. Several explanations are offered for
our findings. Q 1998 Academic Press

1. INTRODUCTION
Out of the seventy-five developing and transitional economies with
populations greater than five million, all but twelve claim to have embarked on some type of transfer of power to local governments Dillinger
w7x.. Fiscal decentralization, or the devolution of fiscal power from the
national government to subnational governments, is seen as part of a
reform package to improve efficiency in the public sector, to increase
competition among subnational governments in delivering public services,
and to stimulate economic growth Bahl and Linn w1x, Bird and Wallich
w4x..
The basic economic argument in favor of fiscal decentralization is based
on two complementary assumptions: 1. decentralization will increase
economic efficiency because local governments are better positioned than
the national government to deliver public services as a result of information advantage; and 2. population mobility and competition among local
governments for delivery of public services will ensure the matching of
preferences of local communities and local governments Tiebout w15x;
*For criticisms, suggestions and help, we thank Richard Bird, Jan Brueckner, Shantayanan
Devarajan, Andrew Feltenstein, Avner Greif, Bert Hofman, Gregory Ingram, Ronald McKinnon, Charles McLure, Wallace Oates, Yingyi Qian, Anwar Shah, Hedy Sladovich, Barry
Weingast, Danyang Xie, Tao Zhang, and seminar participants at Stanford University, Wuhan
University, and the World Bank. We are most grateful to two referees and Jan Brueckner for
their detailed suggestions, which led to a substantial revision of this paper.
244
0094-1190r98 $25.00
Copyright Q 1998 by Academic Press
All rights of reproduction in any form reserved.

FISCAL DECENTRALIZATION AND GROWTH

245

Oates w11x.. These public-finance considerations suggest that policies aimed

at the provision of public services such as infrastructure and education that
are sensitive to regional and local conditions are likely to be more effective
in encouraging growth than centrally-determined policies that ignore these
geographical differences. Consequently, other things being equal, a decentralized fiscal system where local governments play a more important role
than the federal or central government in public-service provision leads to
more rapid economic growth Oates w13x..
Although many policy discussions have favored decentralization, there is
little empirical support to the hypotheses mentioned above. The objectives
of our study are to supply an analytical framework and empirical methodology, and to use the methodology to test for the presence and size of
efficiency gains from fiscal decentralization.
Fiscal decentralization is a complicated phenomenon with many dimensions. This paper will focus on one important dimension: economic growth.
Section 2 provides a tractable theoretical and empirical framework linking
fiscal decentralization to growth, and characterizes parameters that measure the efficiency gains from fiscal decentralization. The growth dimension of fiscal decentralization is emphasized for two reasons. First, economic growth is often cited as a major objective of fiscal decentralization
Bahl and Linn w1x, Bird and Wallich w4x, Oates w13x.. Second, an often-stated
objective of many governments is to adopt policies that lead to a sustained
increase in per capita income. In that context, it is important to know
which level of government national or subnational . contributes more to
economic growth.
Section 3 provides a detailed empirical examination of the relationship
between fiscal decentralization and economic growth. Section 4 concludes
and points to some limitations of the study.
2. ANALYTICAL FRAMEWORK
In this section, we outline a theoretical model of fiscal decentralization
and economic growth. The model assumes, without loss of generality, three
levels of government: federal, state, and local. The level of fiscal decentralization is defined as the spending by subnational governments as a fraction
of total government spending. For example, fiscal decentralization increases if spending by state and local governments rises relative to spending by the federal government.
Following Barro w3x, the production function has two inputs: private
capital and public spending. We depart from the Barro model by assuming
that public spending is carried out by three levels of government: federal,
state, and local. Let k be private capital stock, g total government
spending, f federal government spending, s state government spending,

246

DAVOODI AND ZOU

and l local government spending, all measured on a per capita basis:

f q s q l s g.

2.1.

The production function is Cobb]Douglas1 :

y s k a f b sg l v ,

2.2.

where y is per capita output, 1 ) a ) 0, 1 ) b ) 0, 1 ) g ) 0, 1 ) v ) 0,

and a q b q g q v s 1.
The allocation of consolidated or total government spending g among
different levels of government takes the following form:
f s uf g ,

s s us g ,

l s ul g ,

2.3.

where u f q us q u l s 1 and 0 - u i - 1 for i s f, s, and l. Thus, u f is the

share of federal government in total spending, us the share of state
government, and u l the share of local government. Consolidated government spending g is financed by a flat income tax at rate t :
g s t y.

2.4.

The representative agents preferences are given by

Us

H0

c 1y s y 1
1ys

eyr t dt,

2.5.

where c is per capita private consumption, and r is the positive time

discount rate.
The dynamic budget constraint of the representative agent is
dk
dt

s 1 y t . y y c s 1 y t . k a f b sg l v y c.

2.6.

We further assume a constant tax rate along the balanced growth path.
Given total government spending g, a constant tax rate t , and the shares
of spending by different levels of governments u i s, i s f, s, l ., the representative agents choice of consumption is determined by maximizing 2.5.
subject to 2.6. and the governments budget allocation. Along the balanced growth path, the solution for the per capita growth rate of the
1
The use of more general functional forms such as the CES would not alter our analysis
qualitatively; see Davoodi, Xie, and Zou w5x and Devarajan, Swaroop, and Zou w6x.

247

FISCAL DECENTRALIZATION AND GROWTH

economy is given by
dyrdt
y

1 y t . t 1y a r aau fb r ausg r au lv r a y r .

2.7.

Equation 2.7. 2 shows that the long-run growth rate of per capita output
is a function of the tax rate and the shares of spending by different levels
of government. It forms the basis for our empirical investigation of the
relationship between fiscal decentralization and growth. Following the
literature on fiscal federalism, we regard a country as more fiscally
centralized if it has a higher value of the federal spending share u f .
It is important to note that, for a given share of total government
spending in GDP, a reallocation of public spending among different levels
of governments can lead to higher economic growth if the existing allocation is different from the growth-maximizing expenditure shares. To show
this point, we maximize the growth rate in 2.7. by choosing u f , us , and u l
subject to the constraint u f q us q u l s 1. The growth-maximizing government budget shares are

u fU s

b
bqgqv

usU s

g
bqgqv

u lU s

v
bqgqv

Therefore, as long as the actual government budget shares are different

from growth-maximizing shares, the growth rate can always be increased
without altering the total budgets share in GDP.
3. EMPIRICAL ANALYSIS
3.1. Econometric Specification and Data Sources
Equation 3.1. is the growth regression that will be estimated on a
cross-country panel data using the ordinary least squares technique:
g it s d 1 q d 2 u it q d 3t i t q d4X Di q d 5X Nt q d6X X it q it ,

3.1.

where is 1, . . . , I . and t s 1, . . . , N . refer to country i at time t; I

denotes the number of countries and N the number of time periods; d 1 ,
d 2 , and d 3 are scalar parameters while d4X , d 5X and d6X are vectors; g it is the
average growth rate; u i t is the measure of fiscal decentralization; t it is the
tax rate; Di is a vector of I y 1 country fixed-effects i.e., country dummies.; Nt is a vector of N y 1 time fixed-effects i.e., intercept time
dummies.. We work with time-averaged data since the benefits of fiscal
2
See Davoodi, Xie, and Zou w5x for a more general expression of the balanced growth rate
with the CES production technology.

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DAVOODI AND ZOU

decentralization are not expected to affect year-to-year fluctuations in

growth. Because of our focus on long-run growth, the growth regression is
estimated on data averaged over five- and ten-year periods.3 Accordingly,
the dependent variable is the average growth rate over these two periods;
X i t is a vector of control variables; and i t is the disturbance term that is
assumed to be serially uncorrelated and orthogonal to the explanatory
variables. Our primary concern is the coefficient d 2 . on the fiscal decentralization variable, which is expected to be positive and significant given
the conventional arguments in favor of fiscal decentralization.
The average growth rate is the average growth of real per capita output
over five- and ten-year periods. Real per capita output is the real per
capita gross domestic product GDP. at 1985 international prices and is
taken from the Summers]Heston w14x data set version 5.6a.. The tax rate
is the ratio of total tax revenues to GDP, both in nominal terms and in
local currency; these variables are taken from the International Monetary
Funds Government Finance Statistics GFS. and the World Bank Economic and Social Data BESD. base, respectively.
The measure of fiscal decentralization is the subnational share of total
government spending. The higher is this measure, the higher is the degree
of fiscal decentralization. Such a measure has been constructed previously
by, inter alia, Oates w12, 13x. The numerator of the fiscal decentralization
variable is direct spending by subnational governments, i.e., their total
spending net of intergovernmental transfers. The denominator is the sum
of spending by the national government i.e., the consolidated central
government. and subnational governments state and local. net of intergovernmental transfers. The GFS is the primary source for internationally
comparable data on economic activities at all levels of government. To
increase the sample size, for countries with three levels of government we
have consolidated accounts of the two subnational governments state and
local governments. into one, thus enabling us to pool the fiscal decentralization measure for these countries with countries that have only one
subnational government.
The vector X i t consists of a set of variables identified by Levine and
Renelt w9x as the important control variables for cross-country growth
regressions. These are i. the average growth rate of population; ii. initial
human capital; iii. initial per capita GDP; and iv. the average real
investment share of GDP. The first two variables are taken from the
World Banks BESD; the latter two are from the Summers]Heston data

3
See Barro and Sala-i-Martin w2x for cross-country growth regressions on five- and ten-year
average data.

FISCAL DECENTRALIZATION AND GROWTH

249

base. The measure of human capital is the secondary school enrollment

rate; real investments share of GDP refers to investment in physical
capital.
After combining the above variables from various data sources, we
obtain an unbalanced panel data set of 46 countries over the 1970]89
period. The Data Appendix gives the list of countries included.
3.2. Regression Results
We estimate regression 3.1. using i. three country groupings}the full
sample world., developing and developed country samples; ii. five- and
ten-year average data, and iii. with and without the control variables. Our
baseline regression includes the first five regressors in 3.1.: a constant,
average tax rate, fiscal decentralization, country fixed effects, and time
fixed-effects. We then look at the sign and significance of the coefficient
on the fiscal decentralization variable as we sequentially add the control
variables across the three country groupings. These regressions, therefore,
provide a rich set of sensitivity analyses regarding the possible relationship
between fiscal decentralization and growth. We have summarized all these
regressions in two tables.
Tables 1 and 2 show that there is a negative relationship between fiscal
decentralization and economic growth for five- and ten-year intervals in
the world and developing country samples; the point estimate is statistically significant in a one-tail test at the 5% and 10% level for the world
and the developing country samples respectively. For the world sample, the
t-ratios are y2.00 Table 1; column 5. and y1.85 Table 2; column 5.
while the t-ratios for developing countries are y1.48 Table 1; column 5.
and y1.72 Table 2; column 5.. The one-tail test is a suitable one because
the hypothesis that fiscal decentralization leads to higher growth predicts a
positive relationship. Clearly a negative relation is a rejection of this
hypothesis at the stated significance levels. However, if we were agnostic
and maintained a hypothesis of no relation, then we should employ a
two-tail test. In such a case we would not be able to reject the hypothesis
of no relation at the same significance levels.
With either the one- or two-tail test, the point estimate of fiscal
decentralization is similar for both samples in the two tables. For example,
a 10 percentage point increase in fiscal decentralization well within its
standard deviation of 18%. in the world and developing country samples is
associated with a reduction in the growth rate of 0.7]0.8 percentage
points. As a benchmark comparison, consider another growth-reducing
policy experiment: an equivalent reduction in the investment-GDP ratio of
10 percentage points will lead to a much larger decline in the growth rate
2.3]3.2 percentage points in the world and developing country samples,
respectively..

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DAVOODI AND ZOU

TABLE 1
Five-Year Averages

Dep. Var: Per Capita GDP Growth

World sample
Indep. var.
Constant
Average tax rate
Fiscal
decentralization
Dummy for 1975]79
Dummy for 1980]84
Dummy for 1985]89

1.

2.

3.

4.

5.

1.53
0.69.
y0.04
y0.58.
y0.07
y1.86.
y1.09
y2.02.
y2.34
y4.00.
y1.19
y1.91.

4.41
1.55.
y0.06
y0.85.
y0.07
y1.85.
y1.21
y2.24.
y2.54
y4.28.
y1.45
y2.26.
y1.14
y1.61.

5.53
1.80.
y0.04
y0.49.
y0.06
y1.47.
y1.01
y1.58.
y2.45
y3.23.
y0.98
y1.09.
y1.43
y1.90.
y0.04
y1.05.

48.78
3.60.
y0.06
y0.81.
y0.06
y1.56.
y0.13
y0.20.
y0.77
y0.87.
0.99
0.95.
y1.93
y2.63.
y0.04
y1.25.
y5.86
y3.27.

51.95
3.98.
y0.01
y0.14.
y0.08
y2.00.
y0.17
y0.26.
y0.60
y0.71.
1.39
1.36.
y2.91
y3.73.
y0.06
y1.68.
y6.17
y3.58.
0.23
2.95.

Population growth
Initial human
capital
Initial per capita
GDP
Investment share
of GDP
R-square
Obs
No. of countries
F value
Prob ) F

0.53
158
46
2.40
0.0001

0.54
157
45
2.48
0.0001

0.53
145
43
2.22
0.0005

0.58
145
43
2.61
0.0001

0.62
145
43
2.94
0.0001

Developed countries
Indep. var.
Constant
Average tax rate
Fiscal
decentralization
Dummy for 1975]79
Dummy for 1980]84
Dummy for 1985]89
Population growth

1.

2.

3.

4.

5.

3.42
1.07.
y0.03
y0.54.
0.01
0.18.
y1.16
y2.66.
y1.81
y3.40.
y0.28
y0.47.

3.55
1.01.
y0.03
y0.54.
0.01
0.16.
y1.17
y2.54.
y1.83
y3.23.
y0.29
y0.47.
y0.06
y0.09.

2.91
0.69.
y0.01
y0.20.
0.02
0.42.
y1.46
y2.84.
y2.29
y3.51.
y0.64
y0.83.
y0.50
y0.67.

104.59
4.89.
y0.01
y0.18.
0.04
0.77.
0.25
0.45.
0.95
1.12.
3.44
3.29.
y0.13
y0.21.

97.73
4.57.
y0.02
y0.38.
0.04
0.77.
0.46
0.83.
1.37
1.57.
3.86
3.64.
y0.46
y0.73.

251

FISCAL DECENTRALIZATION AND GROWTH

TABLE 1
Continued.
Indep. var.

1.

2.

y0.01
y0.25.

Initial human
Capital
Initial per capita
GDP
Investment share
of GDP
R-square
Obs
No. of countries
F value
Prob ) F

3.

0.58
72
19
2.93
0.0008

0.58
72
19
2.75
0.0002

0.60
66
18
2.58
0.0036

4.
y0.01
y0.57.
y11.09
y4.82.

0.75
66
18
4.75
0.0001

5.
y0.01
y0.72.
y10.59
y4.65.
0.12
1.62.
0.76
66
18
4.85
0.0001

Developing countries
Indep. var.
Constant
Average tax rate
Fiscal
decentralization
Dummy for 1975]79
Dummy for 1980]84
Dummy for 1985]89

1.
3.46
1.14.
y0.17
y1.28.
y0.08
y1.46.
y0.85
y0.91.
y2.46
y2.55.
y1.64
y1.64.

Population growth

2.
8.40
2.06.
y0.19
y1.51.
y0.07
y1.36.
y0.88
y0.96.
y2.69
y2.81.
y2.15
y2.11.
y2.00
y1.77.

Initial human
capital
Initial per capita
GDP
Investment share
of GDP
R-square
Obs
No. of countries
F value
Prob ) F

0.54
86
27
2.04
0.0105

0.57
85
26
2.23
0.0051

3.
9.75
2.14.
y0.17
y1.19.
y0.06
y1.11.
y0.21
y0.18.
y1.94
y1.42.
y0.86
y0.51.
y2.17
y1.82.
y0.07
y0.99.

0.56
79
25
1.91
0.0221

4.

5.

63.76
3.25.
y0.25
y1.79.
y0.06
y1.18.
0.91
0.79.
0.10
0.07.
1.13
0.66.
y3.33
y2.81.
y0.07
y1.02.
y7.08
y2.82.

69.64
3.76.
y0.14
y1.04.
y0.07
y1.48.
0.40
0.37.
y0.34
y0.25.
1.22
0.75.
y4.81
y3.89.
y0.09
y1.37.
y7.69
y3.26.
0.32
2.71.

0.62
79
25
2.37
0.0036

0.68
79
25
2.84
0.0006

Note: t-statistics are in parentheses. All regressions include country-specific dummies.

252

DAVOODI AND ZOU

TABLE 2
Ten-Year Averages

Dep. Var: Per Capita GDP Growth

World sample
Indep. var.
Constant
Average tax rate
Fiscal
decentralization
Dummy for 1980]89

1.
1.51
0.80.
y0.04
y0.48.
y0.10
y2.18.
y1.30
y2.84.

Population growth

2.
2.52
0.89.
y0.05
y0.54.
y0.10
y2.16.
y1.34
y2.85.
y0.41
y0.48.

Initial human
capital
Initial per capita
GDP
Investment share
of GDP
R-square
Obs
No. of countries
F values
Prob ) F

0.75
87
46
2.38
0.0033

0.75
86
45
2.33
0.0043

3.
5.14
1.48.
y0.07
y0.72.
y0.09
y1.75.
y1.07
y1.66.
y1.14
y1.16.
y0.04
y1.05.

0.75
82
44
2.12
0.0128

4.
60.76
4.56.
y0.11
y1.36.
y0.07
y1.780.
1.05
1.46.
y2.65
y3.03.
y0.05
y1.72.
y7.09
y4.27.

0.84
82
44
3.53
0.0002

5.
60.50
4.51.
y0.08
y0.91.
y0.07
y1.85.
1.10
1.51.
y2.74
y3.08.
y0.05
y1.75.
y7.12
y4.26.
0.06
0.76.
0.85
82
44
2.42
0.0002

Developed countries
Indep. var.
Constant
Average tax rate
Fiscal
decentralization
Dummy for 1980]89
Population growth
Initial human
capital
Initial per capita
GDP
Investment share
of GDP

1.
y0.27
y0.05.
0.09
0.85.
y0.04
y0.52.
y1.09
y1.77.

2.
y3.15
y0.56.
0.13
1.17.
y0.02
y0.28.
y1.07
y1.75.
1.14
1.11.

3.
y2.13
y0.32.
0.14
1.13.
y0.01
y0.16.
y1.31
y1.87.
y0.11
y0.07.
y0.02
y0.46.

4.
80.21
5.73.
0.11
1.73.
0.05
1.37.
1.45
2.52.
0.06
0.08.
y0.02
y1.130.
y9.07
y6.05.

5.
78.15
5.14.
0.10
1.60.
0.05
1.33.
1.55
2.44.
0.05
0.06.
y0.02
y1.08.
y8.92
y5.62.
0.03.
0.46.

253

FISCAL DECENTRALIZATION AND GROWTH

TABLE 2
Continued.
Indep. var.
R square
Obs
No. of countries
F value
Prob ) F

1.
0.63
38
19
1.31
0.2937

2.
0.66
38
19
1.323
0.2922

3.
0.67
36
19
1.083
0.4596

4.
0.92
36
19
5.647
0.0024

5.
0.93
36
19
5.04
0.0055

Developing countries
Indep. var.
Constant
Average tax rate
Fiscal
decentralization
Dummy for 1980]89

1.
3.79
1.58.
y0.22
y1.64.
y0.11
y1.86.
y1.56
y2.58.

Population growth

2.
5.27
1.47.
y0.22
y1.64.
y0.11
y1.79.
y1.64
y2.59.
y0.64
y0.57.

Initial human
capital
Initial per capita
GDP
Investment share
of GDP
R-square
Obs
No. of countries
F value
Prob ) F

0.82
49
27
2.92
0.0088

0.82
48
26
2.83
0.0121

3.
10.50
2.35.
y0.34
y2.35.
y0.09
y1.53.
0.36
y0.37.
y1.42
y1.22.
y0.11
y1.82.

0.84
46
25
2.99
0.0122

4.
58.38
3.53.
y0.33
y2.82.
y0.08
y1.71.
y1.36
1.39.
y2.89
y2.69.
y0.11
y2.19.
y6.15
y2.97.

0.90
46
25
4.60
0.0015

5.
58.60
3.46.
y0.29
y2.17.
y0.08
y1.72.
1.34
1.34.
y3.01
y2.69.
y0.11
y2.12.
y6.26
y2.94.
0.06
0.57.
0.90
46
25
4.26
0.003

Note: t-statistics are in parentheses. All regressions include country-specific dummies.

As for other explanatory variables in the regressions, the average tax

rate is negatively related to growth and quantitatively more significant for
developing countries. This finding perhaps reflects the differential effects
of distortionary taxation between the two sets of countries. Of the four
other control variables, only human capital has the wrong negative. sign;
growth is higher in countries with a higher investment rate, lower population growth and lower initial per capita GDP. The negative coefficient on

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DAVOODI AND ZOU

initial per capita GDP indicates the conditional convergence found in

many previous studies, i.e., other things being equal, countries that start
poorer tend to grow faster.
To sum up, regression results in Tables 1 and 2 show that i. there is no
relationship between fiscal decentralization and growth in developed countries, and ii. the negative relationship between fiscal decentralization and
growth is limited to the developing country sample, which seems to be
driving the same results in the pooled world sample. To explain the
difference, we note that in our panel data there is much more cross-country variation in growth and fiscal decentralization for developing countries
than developed countries. The standard deviation of per capita output
growth in developing countries is three times as high as that of developed
countries; and the spread between the most and the least fiscally-decentralized developing country is 1.4 times as high as the spread in
developed countries. Developed countries are simply too homogeneous
vis-a-vis developing countries, leaving hardly any cross-country variation in
fiscal decentralization to be linked systematically to cross-country differences in growth. Therefore, when the data for developing countries are
pooled with developed countries, the variation in the former dominates
that in the latter, producing a result for the world sample that closely
resembles the developing country sample.
3.3. Some Explanations of the Negati e Effect of Fiscal Decentralization on
Growth in De eloping Countries
How can one explain the negative impact of fiscal decentralization on
economic growth for developing countries? We offer several explanations.
First, the composition of government spending may explain the negative
finding. The decentralization measure in this study does not tell us what a
subnational government buys; it does not distinguish between current
spending e.g., wages and salaries . and capital spending; nor does it
distinguish spending on welfare and social security from infrastructure
spending. The conventional wisdom points towards positive growth effects
of capital and infrastructure spending and negative growth effects of
welfare and current spending. Excessive spending by subnational governments on the wrong expenditure items can lead to lower growth even if the
expenditure assignment is optimal. Second, lower growth can result from
the wrong revenue assignment among various levels of government. For
example, subnational governments may be raising revenues using a tax
instrument which should have been used by the central government. Third,
the efficiency gains from fiscal decentralization, perhaps the strongest

FISCAL DECENTRALIZATION AND GROWTH

255

argument in its favor, may not materialize for developing countries since
revenue collection and expenditure decisions by local governments may
still be constrained by the central government. Fourth, in practice local
governments may not be responsive to local citizens preferences and
needs. This can occur when local officials are not elected by local citizens
and when local citizens may be too poor to vote with their feet.
4. CONCLUSIONS
In this paper we have provided a simple endogenous growth model
showing how the degree of fiscal decentralization affects the growth rate of
the economy. We used a cross-country panel data set of 46 developed and
developing countries over the 1970]89 period to investigate whether fiscal
decentralization has any growth impact. From our sample, developed
countries are on average more decentralized than developing countries
33% vs. 20%. and tend to have a higher per capita GDP growth rate 2%
vs. 1.6%.. But can one conclude that there is a positive relationship
between decentralization and growth? Given other determinants of growth,
we find a negative relationship for developing countries and the world, and
none for developed countries. The point estimate for the developing
country sample is significant at the 10% level in a one-tail test, which is an
appropriate test under the null hypothesis that fiscal decentralization leads
to higher growth. Therefore, on the basis of this test and the significance
level we clearly reject the hypothesis of a positive relationship between
fiscal decentralization and growth.
Finally, we want to draw attention to one major limitation of this
preliminary study. Our measure of fiscal decentralization, which is the
subnational government share of total government expenditure, may not
reflect the subnational governments autonomy in expenditure decisionmaking. As Musgrave w10x has pointed out, subnational governments that
act as administrative agents of national governments do not necessarily
reflect true expenditure decentralization. Further work will look into other
related issues of fiscal decentralization such as local autonomy, local
revenue collection, the composition of local spending, and intergovernmental transfers. 4

Some analyses in a dynamic framework can be found in Zou w18, 19x.

256

DAVOODI AND ZOU

APPENDIX
List of the 46 Countries in the Sample
Argentina
Chile
Czechoslovakia, Former
Finland
Hungary
Iceland
India
Indonesia
Iran, Islamic Republic of
Israel
Italy
Kenya
Malawi
Malaysia
Mexico
Netherlands Antilles
Norway
Paraguay
Philippines
Romania
Sweden
Thailand
Uruguay

Zimbabwe
Belgium
Denmark
France
Ireland
Luxembourg
Netherlands
Portugal
United Kingdom
Poland
China
Australia
Austria
Bolivia
Brazil
Canada
Colombia
South Africa
Switzerland
United States
Germany
Spain
Yugoslavia, Former Fed. Rep.

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